Investors’ role in next week’s closure of San Antonio hospital under scrutiny
A 356-bed San Antonio medical center set to shut down next week is the latest hospital closure raising questions about the role of private equity in the health care sector.
For more than four decades, Texas Vista Medical Center has been the primary health care option for San Antonio’s majority-Hispanic south side. When the hospital shuts down on Monday, it will leave a population of about half a million people with just one full-service hospital which has 110 beds. The average nationwide ratio is 2.38 beds per 1,000 people. Texas Vista’s closure will bring this area’s ratio to 0.2 per 1,000.
“The nearest hospital is between 12 to 15 minutes away from our facility, and if you’re having a stroke or a heart attack, time is of the essence,” respiratory therapist Jessica Carrasco told CBS News chief medical correspondent Dr. Jon LaPook. Carrasco, who worked at Texas Vista for eight years, was one of more than 800 employees who learned in March that they’ll be out of a job when the hospital closes its doors.
Texas Vista’s owner, Steward Health Care, is shutting down the hospital six years after purchasing it with the help of private equity investors. The hospital has been subject to some of the same opaque financial transactions that have occurred prior to other hospital failures, such as Delaware County Memorial Hospital in suburban Philadelphia.
For example, at the same time Steward bought the hospital, then known as Southwest General, the land and the buildings were bought by another firm called Medical Properties Trust. The arrangement required Steward to pay millions in rent annually to Medical Properties Trust — money that came out of Texas Vista’s operating budget.
Steward renamed the hospital Texas Vista in 2021. In a press release, the company said the hospital would take on “a leadership role in reducing health care disparities for the communities the hospital serves.”
In the wake of announcing its closing, the company cited the “unsustainable” financial challenges of providing care to those communities. In a statement to CBS News, Steward said the hospital serves a “disproportionately free-care, higher-needs patient population” and said 25% of its patients don’t pay for their care.
Steward also said the $5 million in annual rent it owes to Medical Properties Trust represents only “3 percent of the annual operating budget” and was “absolutely not a factor in the decision to close the hospital.”
Yet, in an audio recording obtained by CBS News of a leadership meeting at the end of March, the hospital’s CEO did raise the issue of rent, acknowledging Steward was “trying to get out of lease obligations.”
“I didn’t know you could, like, rent out a hospital,” said Carrasco, who learned about the real estate deal when Steward announced it was closing Texas Vista. “I was under the impression that we owned the building.”
Some local officials say they have been left in the dark when it comes to figuring out the financial reasons for Texas Vista’s closure.
“There is no transparency,” said city councilwoman Adriana Rocha Garcia, who represents the district Texas Vista serves. She said she found out about the closure when the public did, and that she was never able to get a look at Texas Vista’s financials because it is a private company.
“I compare this to city government,” Rocha Garcia said. “You can submit an open records request and you could see all of our financial transactions. That doesn’t happen here.”
“They recognized an opportunity”
Based in Birmingham, Ala., the publicly-traded Medical Properties Trust has bought up the real estate of nearly 200 U.S. hospitals, often in low-income communities.
“They recognized an opportunity over the last decade, and that was private equity looking to sell hospital systems,” said Rob Simone, an analyst at a Connecticut-based research firm called Hedgeye.
Simone has advised clients to bet against Medical Properties Trust by shorting its stock, though he said neither he nor Hedgeye trade on the company.
“Medical Properties Trust does not employ any of the doctors or the EMS personnel,” Simone said. “What they do is they provide cash, capital to the folks that run the hospital. That’s it. And they get back a check for rent.”
The firm’s CEO, Ed Aldag, declined an interview, and the company declined to answer a detailed list of questions. In a statement, a Medical Properties Trust spokesperson said the company is “a trusted and committed resource for hospital capital and has been proud to enable operators of hospitals to unlock the value of their real estate assets” to pay for improvements.
Yet Simone said the firm has saddled several of its hospitals with unsustainable rents.
“Many of its hospitals are struggling and failing,” he said, adding that the rent burden can force its tenants, companies like Steward Health Care and Prospect Medical Holdings, to cut back on hospital operations.
A CBS News investigation found a pattern of supply shortages at 14 hospitals where Medical Properties Trust owns the real estate.
In Massachusetts, at least 16 vendors weren’t paid on time, including a dialysis company that provided services to five hospitals.
At one Pennsylvania hospital, a local police chief pulled out of an agreement to have an officer on site for security after nearly $70,000 in payments were missed.
Medical Properties Trust said it didn’t have any role in “hospital operations or operations decisions” and denied rent is a significant burden for the hospitals where it owns the real estate.
“No hospital in our portfolio has ever failed or curtailed services due to an inability to pay rent – because rent constitutes only a small percent of overall hospital expenses,” the spokesperson wrote in a statement. “Our core mission is to ensure that hospitals within our portfolio remain financially sound and continue to serve their communities over the long term.”
Medical Properties Trust said it was “rare” for hospital operators to be “unable to timely pay their operating expenses.” The company said, in those cases, it attempts to work “collaboratively with the operator to address the problem,” though it did not specify how it was working with Steward to address the problems at Texas Vista.
Bloomberg has previously reported that the sale of real estate to Medical Properties Trust enabled Steward’s private equity backers “to extract hundreds of millions in dividends for its investors.” Medical Properties Trust also owns about a 10% stake in Steward.
Concerns over how private-equity-backed hospital companies spend the money they make from selling off real estate led Rhode Island Attorney General Peter Neronha to block a potential sale to Medical Properties Trust in his state.
“As a regulator, I could stop it here because I had the authority,” Neronha told CBS News last fall, citing a unique state law that gave him the power to scrutinize hospital transactions. “Laws on the books like that allow us to intervene to make sure that the health care system is going to be one of quality, that’s affordable, and accessible.”
For executives at Medical Properties Trust, buying hospital real estate has been lucrative. According to the company’s SEC filings, from 2017 to 2021, Aldag’s salary, bonuses and stock awards amounted to a total of about $70 million.
The company did not respond to questions about Aldag’s compensation.
“Less about people and more about profits”
Documents obtained by CBS News show Steward had earlier this year missed more than $650,000 in payments to at least a dozen different vendors serving Texas Vista. Vendors left unpaid included a breast milk bank in Austin, a Mississippi medical supplier, and a Houston-based company that rented respiratory equipment to the hospital.
“Coordinators were having to ‘phone a friend’ to let us borrow, you know, a cup of sugar,” Carrasco said, adding that she was dealing with shortages of supplies for respiratory masks. “We provide patients with a non-invasive ventilation device, and if I don’t have the hose to connect from the machine to the mask, I can’t do anything for them.”
In a statement, a Steward spokesperson said all outstanding vendors at Texas Vista “will be paid.” The company also said it had invested $2 billion in its hospitals in underserved communities, including “close to $100 million” at Texas Vista, “while creating revenue for the area and employing more than 800 staffers”.
“Without Steward’s commitment, Texas Vista Medical Center would have closed years ago,” the company wrote in its statement to CBS News.
Yet Carrasco said she believed the hospital “backtracked” under Steward’s ownership.
“To me it became less about people and more about profits,” she said.
Rocha Garcia said she believes the closure would not have happened in a more affluent area.
“It’s infuriating,” she said. “My people, my residents are one minute away from losing hope.”